BIRINYI: The Bears Are Giving Up And Buying Stocks

Sept. 7 (Bloomberg)
-- The $1.9 trillion restored to U.S. equity prices in 2012 has
pushed the Standard & Poor’s 500 Index within 10 percent of a
record, more than 7 percentage points closer than any country
among the world’s biggest stock markets.

The benchmark gauge for American equities climbed 2 percent to
1,432.12 yesterday as the
European Central Bank detailed its bond-buying plan and data
boosted optimism in the labor market. More gains are likely as
bearish investors give up and start buying, according to Laszlo
Birinyi, president of Birinyi Associates Inc. in Westport,
Connecticut.

“They realize it isn’t working,” Birinyi, an equity trader for
Salomon Brothers Inc. in the 1980s, said in a telephone
interview. “The excuses of no volume and earnings aren’t going to
be good -- that’s not happening, and maybe it’s time to join the
party.”

U.S. equities are climbing as Federal Reserve Chairman Ben S.
Bernanke’s policy of holding rates near zero helps profits and
economic growth rebound from the first global recession since
World War II. Gross domestic product in the U.S. is forecast to
increase 2.2 percent this year while earnings in the S&P 500
may reach $103.48 a share, the most ever, according to the
average of analyst estimates compiled by Bloomberg.

Yesterday’s advance left the S&P 500 9.3 percent from its
all-time high of 1,565.15, reached Oct. 9, 2007. Among gauges in
the 10 largest equity markets, the U.K.’s FTSE 100 Index is 17
percent away from its peak, while Canada’s S&P/TSX Composite
has 24 percent to climb, according to data compiled by Bloomberg.

Total Return

Including dividends, the S&P 500 reached a record yesterday,
while the Nasdaq Composite Index closed yesterday at the highest
point since 2000, the data show. Financial firms, companies that
benefit from discretionary spending by consumers, and technology
suppliers have rallied more than 35 percent since last year’s low
of 1,099.23 on Oct. 3.

Mining and chemical companies led yesterday’s advance, jumping
2.6 percent, followed by banks and technology producers, which
added 2.4 percent. None of the 10 S&P 500 industries
increased less than 1 percent.

“I’m a little bit surprised by its strength,” said Birinyi, who
advised clients to buy stocks before the S&P 500 hit a
12-year low in March 2009. “This is a little bit of a stronger
rally, not just in price but the fact that it’s affecting all
areas. So it’s not just the usual excuses of a short-term rally
or hedge funds buying.”

Credit Crisis

American companies are doing better than the rest of the world in
part because of Europe’s debt crisis. The S&P 500’s advance
of 112 percent since its 12-year low in March 2009 compares with
72 percent from the Stoxx Europe 600 Index and 64 percent in the
MSCI Asia
Pacific Index, the data show.

Bearish bets against the S&P 500 have increased. The
proportion of S&P 500 shares available for trading, or float,
that was sold short on Aug. 15 increased to 4.02 percent, up from
3.72 percent at the end of March, according to bi-monthly data
compiled by U.S. exchanges and Bloomberg.

“Everybody knows that stocks should go higher, but they say this
time is different and there are so many problems,” said Byron
Wien, vice chairman of the advisory services unit of
Blackstone
Group LP, the world’s biggest private-equity firm. He spoke in a
Sept. 6 telephone interview from New York. “At a certain point,
it looks like the negatives aren’t as fierce as you feared.”

Earnings Growth

Since the end of 2009, the S&P 500’s median quarterly
earnings growth has been 25 percent, data compiled by Bloomberg
show. While profits may decline 1.7 percent this quarter, they
will rebound 11 percent in the final three months of 2012 and
rise 11 percent next year and 12 percent in 2014, according to
analyst estimates compiled by Bloomberg.

Stocks in the S&P 500 closed yesterday at the highest level
since Jan. 3, 2008, when the index was mired in its worst start
to a year in a quarter century. Share
prices are also at the same level as in April 2007, five months
before they began a 57 percent plunge spurred by the souring of
subprime mortgages and the collapse of Lehman
Brothers Holdings Inc.

“Could we approach levels of what we saw back in 2007 and could
that be argued as a bubble?” said Mark Luschini, chief investment
strategist for Philadelphia-based
Janney Montgomery Scott LLC, which manages about $54 billion.
“It would be a bit of a bubble if we got there today or tomorrow
with no change in data flow or prospects. Could it happen over
the next 12 to 18 months, predicated upon a stabilizing situation
in Europe and China, improving fundamentals? Yes.”

Changing Index

A total of 68 stocks have been removed and replaced from the
S&P 500 since 2009 as companies were dropped following
takeovers, declines in market value, corporate restructurings and
bankruptcies. General Motors Co., bailed out by the U.S.
government in 2009, and Black & Decker Corp., which was
acquired by Stanley Works in 2010, are among companies that were
pulled.

The S&P 500 is trading 13 percent below its average valuation
since the 1950s and its price-to-earnings ratio has fallen
throughout the rally since 2009, according to data compiled by
Bloomberg. The benchmark gauge for American equities trades at
14.51 times reported profits, down from the 24.26 reached in
December 2009, the data showed.

Even as the S&P 500 doubled, investors pulled money from
mutual funds that buy U.S. stocks for a fifth year in 2011, the
longest streak in data going back to 1984, according to the
Investment Company Institute, a Washington-based trade group.
Withdrawals were $135 billion last year, the second-highest total
after 2008, and about $75 billion has been pulled in 2012.

Fund Withdrawals

The flight from mutual funds helped lower daily volume for U.S.
exchange-listed stocks to 6.5 billion shares in 2012, down 44
percent from its peak in October 2008, according to data compiled
by Barclays
Plc and Bloomberg. Volume hasn’t been this light at the same time
that valuations were below their historic average since at least
2003, when the data began.

U.S. equity volume reached the lowest levels since at least 2008
excluding holidays in August as vacationing traders awaited clues
from the Federal Reserve on stimulus measures. The S&P 500
gained 2 percent in the month, its third straight advance.

“The market continues to think that the Fed will support economic
growth and the ECB will do whatever it needs to do in terms of
its firefighting,” said Wayne Lin, a money manager at
Baltimore-based Legg Mason Inc., said in a phone interview on
Sept. 6. His firm oversees $636 billion. “It’s running ahead of
itself a little bit.”

Buying American

Investors have bought American equities since Alcoa Inc.
kicked off the second-quarter earnings season in July as more
than 70 percent of S&P 500 companies that reported results
beat analysts’ estimates, according to data compiled by
Bloomberg. That compares with about half of the constituents in
the MSCI World Index from developed and emerging markets.

Apple Inc.,
Whole
Foods Market Inc. and Fifth Third Bancorp posted some of the
biggest advances among S&P 500 stocks since the market bottom
in 2009, rising more than 700 percent. Wyndham Worldwide Corp.,
the franchiser of Days Inn hotels and Super 8 motels, increased
17-fold to lead gains in the index.

Companies that rely on consumer discretionary spending, computer
and software makers, and banks had the best performance out of 10
groups in the benchmark gauge for American equity since the bull
market began, more than doubling as investors bought companies
that are most tied to economic growth. Defensive stocks including
utilities and energy producers posted the smallest gains.

Energy stocks, which trail the S&P 500 by 38 percentage
points since March 2009, have fueled a 12 percent rally in the
stock gauge from its June 1 low. The 15 percent increase in oil
and gas producers includes gains of more than 50 percent in
Valero
Energy Corp. and NRG Energy Inc.

“The U.S. has recovered better than the other markets because our
financial system and companies have restructured and responded
first,” James McDonald, chief investment strategist at Northern
Trust Corp. in Chicago, wrote in an e-mail Sept. 6. His firm
manages $704.3 billion. “We still like the U.S. market the best.”

--Editors: Chris Nagi, Lynn Thomasson

To contact the reporters on this story: Rita Nazareth in New York
at rnazareth@bloomberg.net; Nikolaj Gammeltoft in New York at
ngammeltoft@bloomberg.net; Whitney Kisling in New York at
wkisling@bloomberg.net.

To contact the editor responsible for this story: Lynn Thomasson
at lthomasson@bloomberg.net